A surge in coronavirus cases on the cusp of winter has hotel operators and their lenders on high alert.
Banks that lend to hotels — as well as motels, resorts and other lodging establishments — had hoped that six months of loan forbearance would be enough to usher the hospitality sector from crisis to recovery and ward off defaults and lofty charge-offs.
But most initial deferral periods ended in October, and others will expire in a matter of weeks, leaving hotels to resume payments just as the pandemic enters a new phase.
STR, a hotel industry data firm, said average U.S. national occupancy was 43% for the week ended Nov. 13, down more than 32% from a year earlier and, notably, off from 48% during the third quarter, when travel and hotel bookings had started to rebound.
“I don’t think we, as an industry, are out of the woods,” Kessel Stelling, chairman and CEO of Synovus Financial in Columbus, Ga., said at recent conference hosted by Bank of America. “I think we’ve got a tough couple of months” ahead.
The $53 billion-asset Synovus was an active hotel lender before the pandemic. Hotel loans accounted for 70% of the $865 million increase in criticized and classified loans during the third quarter, executives said during the company’s third-quarter earnings call.
Nearly 9% of Synovus’ hotel portfolio, or $125 million in loans, had principal and interest deferrals on Sept. 30. Those credits accounted for three-fourths of commercial loans on deferral, demonstrating the outsize pain that hotels had endured.
The latest health data bodes poorly for the hospitality sector. The pandemic has intensified, topping 100,000 daily cases since Nov. 3 and putting the month on track to be the worst yet, according to Johns Hopkins University’s running tally. The U.S. reported more than 170,000 cases on multiple days in November, a level that had not been reached in prior months.
States such as New York, Illinois and California have imposed new restrictions to slow the spread of the virus, and the Centers for Disease Control and Prevention has advised against Thanksgiving travel. And hotel bookings are falling again.
Amid all that, bankers will have to start making hard decisions on loans coming out of deferment. Regulators let banks offer deferrals and modifications without labeling them as troubled debt restructurings, which would normally signal charge-offs ahead. Most of the deferrals started in April and May.
Barring new government intervention — either from regulators or Congress — hoteliers face the possiblity of default. And banks may have to start charging off substantial amounts of loans during the fourth quarter, said Matthew Anderson, a managing director at Trepp.
Trepp, a commercial real estate data firm, said the total delinquency rate on commercial mortgage-backed securities made post-2009 — where payments are more than a month past due — was 7.43% in October. CMBS delinquencies are much higher for lodging loans: 19.2%.
Delinquency rates on hotel loans held on bank balance sheets have hovered near zero, Anderson said, but